Supreme Court Rebukes Crony Capitalism

The following first appeared in City Journal California.

JAN. 6, 2012


On December 29, 2011, the California Supreme Court handed down what the state’s urban redevelopment agencies (RDAs) and their supporters called a “worst of all worlds” ruling—first upholding a law that eliminates the agencies, then striking down a second law that would have allowed them to buy their way back into power. This was great news for critics who had spent years calling attention to the ways modern urban-renewal projects distorted city land-use decisions, abused eminent-domain policies, and diverted about 12 percent of the state budget from traditional public services to subsidies for developers, who would build tax-producing shopping centers and other projects sought by city bureaucrats. As of now, the agencies are history, though the redevelopment industry is working to craft new legislation that would resurrect them in some limited form.

California’s redevelopment agencies were first introduced in the 1940s to combat blighted urban areas by providing a tax-sequestering mechanism so that cities could concentrate investment in struggling areas. But after Proposition 13 placed limits on local property taxes and various ballot initiatives further constrained the way state and local governments could spend their revenues, redevelopment mutated into a tool for tax-hungry cities to capture dollars that would otherwise go to counties and the state. Restoring decrepit areas took a back seat to grabbing revenue. The RDAs loved to oversee the construction of shopping centers and auto malls, for example, because those projects generally filled city coffers with sales taxes.

No Money

As California faced a protracted structural budget deficit, however, there were fewer and fewer pots of money for officials to plunder. Though operated by cities, RDAs are actually state agencies. In 2009, Governor Arnold Schwarzenegger tried to “raid” redevelopment funds, but the powerful League of California Cities and the California Redevelopment Association (CRA) struck back in 2010 with Proposition 22. This ballot initiative, sold to voters as a means to keep Sacramento politicians away from local transportation budgets, forbade the state from taking RDA funds. After its passage, the measure’s advocates viewed redevelopment funds as sacrosanct.

In fact, Proposition 22 planted the seeds of redevelopment’s demise. Since the agencies’ money was now off limits, new Gov. Jerry Brown decided simply to shut them down. Yet as a sop to the legislature’s many redevelopment supporters—especially in the Democratic Party—the governor also signed another bill that let the agencies stay in existence by paying what the League and the CRA called “ransom.” Redevelopment critics were happy when the governor signed the first bill, but dismayed when the second enabled many of the biggest and most abusive agencies to remain alive by spending tax dollars.

Redevelopment officials, for their part, weren’t happy with any funding loss and filed a lawsuit challenging both laws. This was a controversial strategy—and proved a devastating mistake. “We’re very gratified that the California Supreme Court has agreed to take our case, issued the stay we requested to preserve the status quo, and that it is moving forward on an expedited basis,” the League of California Cities’ executive director, Chris McKenzie, wrote in August. But McKenzie failed to see the strategy’s perils, which other redevelopment boosters, such as state Senator Bob Huff, R-Diamond Bar, had warned about.

‘Proper Exercise’

The court ruled 7–0 on the first bill that ending the agencies was “a proper exercise of the legislative power vested in the Legislature by the state Constitution. That power includes the authority to create entities, such as redevelopment agencies, to carry out the state’s ends and the corollary power to dissolve those same entities when the Legislature deems it necessary and proper.” Then the court ruled 6–1 that the second measure was unconstitutional: “A different conclusion is required with respect to Assembly Bill 1X 27, the measure conditioning further redevelopment agency operations on additional payments by an agency’s community sponsors to state funds benefiting schools and special districts. Proposition 22 . . . expressly forbids the Legislature from requiring such payments.” For critics of the RDAs, using Prop. 22 to deliver redevelopment’s final blow was the sweetest part of the ruling.

The redevelopment agencies are fighting to return, but unlike last year, when most Republicans opposed the effort to dissolve the agencies, 2012 may see a minority party doing the right thing. A number of assembly Republicans who refused to support Brown’s anti-RDA legislation claimed that they did so because the package of bills would just resuscitate the RDAs. Well, the state supreme court has now killed that argument. Will Republicans side with property rights and limited government at the local level, or again stand up for these misguided and destructive bureaucratic bodies?

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